Valspar's Earnings Top as Paints, Coatings Shine - Analyst Blog

Valspar's VAL profit for second-quarter fiscal 2014 (ended Apr 25, 2014) climbed on continued momentum across its paints and coatings businesses. Its profit, as reported, shot up around 12% year over year to roughly $86 million or 99 cents a share.

Valspar, which is one the prominent paints makers along with Akzo Nobel (AKZOY), PPG Industries PPG and Sherwin-Williams SHW, logged earnings, barring restructuring charges, of $1.07 per share for the quarter. That topped the Zacks Consensus Estimate of $1.04 and exceeded the year-ago quarter adjusted earnings of 91 cents.

Revenues rose roughly 10% year over year to $1,130 million in the reported quarter riding on gains across Paints and Coatings divisions. It came ahead of the Zacks Consensus Estimate of $1,107 million. Sales were backed by healthy volume gains in the paints business in the U.S., acquisitions and new business wins.

Shares of the 200-plus years old company popped as much as 3.6% in the trading session yesterday. The stock eventually closed the day at $74.38, gaining 1.4%.

Segment Highlights

Sales from Valspar's larger Coatings division rose 12% year over year to $603 million in the quarter on contributions of Inver acquisition and volume gains in packaging coatings and wood coatings, offsetting declines in general industrial and coil coatings that were hit by bad weather conditions in the U.S. Gains in the wood product line was backed by an improving housing market.

Paints segment's revenues moved up 8% to $472 million on volume gains across the U.S., China and Australia. Volumes rose 10% in the U.S. in the quarter. The division also benefited from continued rollout of Valspar branded products at Ace Hardware. Sales in the home improvement channel rose on the launch of Valspar Reserve interior and exterior paints

Margins and Expenses

Gross margin (as reported) improved to 33.7% in the reported quarter from 32.8% a year ago. Adjusted gross margin rose to 34.4% from 33.5% in the prior-year quarter, supported by better sales mix and higher sales volume.

Operating expenses went up 14% year over year to $237.7 million, partly due to higher selling, general and administrative expenses to support growth initiatives, including higher spending on brand building activities in the paint business. Operating expenses (as a percentage of sales) were 21%, up from 20.2% a year ago.

Financials

Valspar ended the quarter with cash and cash equivalents of $116.5 million, down around 49% year over year. Total long-term debt rose 5% year over year at $1,092.4 million.

Valspar repurchased around 1.5 million shares during the reported quarter for $108 million.

Guidance Reaffirmed

Valspar, a Zacks Rank #4 (Sell) stock, backed its adjusted earnings forecast of $3.95 to $4.15 per share for fiscal 2014. The company said that it will continue to focus on driving growth through new business wins, acquisitions and efforts to improve productivity.